SCENARIO 20-2
The following payoff matrix is given in dollars.

Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Scenario 20-2,the coefficient of variation for Action A is
A)12.8%
B)33.3%
C)133.33%
D)333.3%

Question

SCENARIO 20-2
The following payoff matrix is given in dollars.

Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Scenario 20-2,the coefficient of variation for Action A is
A)12.8% 
B)33.3% 
C)133.33% 
D)333.3%

Quizplus · Accepted Answer

The coefficient of variation for Action A is calculated as (25-20)/20 = 0.25. The coefficient of variation for Action B is calculated as (40-30)/30 = 0.33. Since Action B has a higher coefficient of variation, it is a riskier choice but also has a higher potential payoff. Therefore, the best choice would depend on the decision maker's risk preference. If they are risk seeking, they should choose Action B. If they are risk averse, they should choose Action A.

SCENARIO 20-2 The Following Payoff Matrix Is Given in Dollars